Generally speaking, the concept of FDI refers to the setting up of an overseasoperation (greenfield investment) or the acquisition of an existing enterpriselocated within another economy. FDI implies that the investor exertsa significant degree of influence on the management of the enterprise residentin the host country. The management dimension is what distinguishesFDI from other forms of investment such as foreign portfolio investment(FPI), which includes equity and debt securities, and financial derivatives.A closer look at the concept of FDI, however, reveals that, partly due tothe complex nature of this phenomenon, its definition has changed considerablyover time. One of the earliest definitions can be found in the 1937inward investment survey conducted by the US Department of Commerce,which aimed to measure ‘all foreign equity interests in those American corporationsor enterprises which are controlled by a person or group of persons…domiciled in a foreign country’ (US Department of Commerce, 1937,p. 10). No specific definition of ‘control’ was provided in this report,although control was the main criterion for the foreign inward investmentclassification. In the subsequent survey of outward investment, ‘the UnitedStates equity in controlled foreign business enterprises’ (US Department ofCommerce, 1953, p. 4), control was explicitly defined on the basis of fourinvestment categories, only some of which would still constitute measuresof FDI.

As noted by Lipsey (1999), the current definition of FDI, as endorsed bythe IMF (1993) and the OECD (1996), seems to have shifted its emphasisaway from the idea of ‘control’, toward a ‘much vaguer concept’ (Lipsey,1999, p. 310) of ‘lasting interest’. According to this new benchmark definition,FDI ‘reflects the objective of obtaining a lasting interest by a residententity in one country (“direct investor”) in an entity resident in an economyother than that of the investor (“direct investment enterprise”). Thelasting interest implies the existence of a long-term relationship between thedirect investor and the enterprise and a significant degree of influence onthe management of the enterprise’ (OECD, 1996, pp. 7–8).

In spite of the efforts of international agencies to push for uniformity, itis important to acknowledge that definitions and measurements of FDIstill differ among countries. Indeed, different countries often have diverse conventions as to what constitutes ownership of a company from the pointof view of the management of its assets. For example, while in the USA anequity capital stake of 10 per cent of shares would suffice to indicate foreignownership, in the UK a stake of 20 per cent or more would be regarded as amore appropriate indicative threshold. Most importantly, there are seriouspractical difficulties in the compilation of FDI data, particularly in the caseof developing countries which often lack the necessary technology and systemsto collect such data on a systematic basis. For this reason, evenUNCTAD’s World Investment Reports often contain statistics derived throughthe use of proxies. It is due to this kind of problem that published FDI statisticsof most countries, but particularly the developing ones, are subject toconsiderable errors and omissions. This also explains why reported data onFDI inflows and outflows, that should theoretically be equal to each other,always tend to show discrepancies.